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Pot legalization presents commercial tenants unique challenges

California commercial real estate is rarely a boring field, but the industry may be about to get considerably more interesting. Nine states considering legalizing marijuana in some form, and California's ballots feature proposal for legalizing the drug for broad recreational use. If the initiative passes, it will be a game changer in the industry, busting the legitimate market wide open. For savvy developers who have the resources and foresight to get into the game early, profits could be astronomical. For those who are further down the food chain in the marijuana hustle, not owning their own real estate may make for unbelievable headaches.

The legalization of marijuana is about as close to a sure-fire bet for revenues in the both the public and side as there may ever be. However, with recreational legalization will come an exponential increase in regulation and zoning issues. Compared to the relatively tight lines that those leasing a space for a similar business like a brewery or restaurant, marijuana growing or product preparation facilities may face significantly more complex restrictions and standards to comply with, while hemmed in on the other side by the terms of lease created by a landlord holding the majority of the leverage in that relationship.

If Colorado is any indication, the market for warehouse space leasing will become a feeding frenzy over the next year, as ambitious entrepreneurs attempt to get in on the ground floor of a robust industry. With such tight competition in the relatively limited market of warehouse leasing, tenants may be facing the prospect of losing an opportunity or signing a lease that is not at all favorable to them, making the negotiation of tenets within the contract a very difficult prospect. Still, over time, the tables may begin to turn, as California's relatively robust tenant protections give clout to the possibility of unfair landlords using their leverage to ignore contract obligations.

Whenever you are considering a lease, it is vital to understand all the elements of it, especially those that may lead to significant unexpected costs or conflicts with the owner of the property. The guidance of an experienced commercial real estate attorney can help you secure the best deal for your situation, regardless of factors beyond your control.

Source: Forbes, "Marijuana Legalization Is Really A Real Estate Story, And That Has Big Implications For California," Ely Razin, Nov. 03, 2016

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